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PE investments likely to cross USD 7 bn in 2010: E&Y

business Updated: Dec 26, 2010 11:51 IST
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The country is likely to get over USD 7 billion in private equity investments in 2010, as robust economic growth is making the country an attractive market for fund mangers, according to global consultancy E&Y.

"PE investments are expected to touch USD 6.5 billion in 2010 up from USD 3.5 billion in 2009," Ernst & Young's Partner (Private Equity) Mayank Rastogi.

"This number may well cross the USD 7 billion-mark if some of the large ticket deals which are currently in works may get announced in the last week of December 2010," he said.

Sectors such as power and transportation, infrastructure ancillaries, consumer and branded products, health care, education and financial services, are expected to increased PE activities next year.

"Exits are likely to become a mainstream activity as the funds turn a full investment cycle in India... Secondary deal activity is expected to increase with significant exits expected over next 12 to 18 months," he said.

According to him, exit activities by PE players rose in 2010, driven by three factors - vintage of PE investments in India, healthy capital markets performance and developing secondaries market. "In 2010, PE firms recorded more than 80 exits at USD 5.5 billion - comprising IPOs, strategic sales, buybacks and secondary deals.

This exit performance was the strongest ever in the history of PE in India," Rastogi pointed out. Leaving behind the overall slowdown in 2009, PE market has witnessed increased activities this year. Sluggish global economy coupled with good domestic growth prospects driving fund managers to park their money in Indian market.

"Year 2010 clearly saw an uptick in the PE market in India... Whilst the year saw some big investments in the Power and Infrastructure sectors, notable amount of capital was deployed in telecom, financial services, consumer products, health care, technology and education," Rastogi said.

In 2010, the PE deal sizes too increased, indicating a maturing PE market as well as the ability of Indian entities to absorb "relatively meaningful does of capital".

"Average deal size improved from about USD 20 million in 2009 to USD 27 million in 2010," Rastogi noted.

However, PE players faced a challenge situation in raising funds. Funds raised for India is estimated at USD 2.5 billion during 2010 to date, which is much less than USD 3.8 billion mopped up in 2009.

Noting that this should not be a reason for concern, Rastogi said broad estimates indicate that funds focusing on India have dry powder in excess of USD 12 to 15 billion and are also looking to raise further capital.

"This does not count the massive amounts of dry powder that global funds have with no specific India allocation (estimated to be in excess of USD 450 billion)," he added.